With key pieces apparently falling into place there is a temptation to talk about a green light for the Mackenzie Gas Project.
Even Canada’s self-styled national newspaper, The Globe and Mail, said the venture appears set to proceed.
But go easy on the assumptions, says Imperial Oil spokesman Pius Rolheiser.
“There is only one green light and that could be two years away,” he told Petroleum News.
It will happen when regulatory approvals and permits are in hand, shipping contracts have been signed and the companies involved have given their final go-ahead.
Despite that cautionary note, what has happened this month is one of the strongest signals yet short of a green light that Canada will actually take the first step towards developing its vast Arctic gas resources.
Appears Ottawa will participate
And it comes with a helping hand from the Canadian government.
Contrary to all of the industry’s usual instincts about state participation in energy projects, it appears that Ottawa will become a commercial partner in the C$7 billion venture — participation that would apparently be welcomed by the private sector.
As a result of what sources have described as a measured government approach, the Mackenzie plan is more strongly placed than ever to move from dream to reality.
Imperial, its partners and the Northwest Territories government are as bullish as they have ever been that the project is on track.
Following six months of negotiations, the Canadian government put everyone in a positive frame of mind by laying out a set of options that Rolheiser said largely meet Imperial’s concerns about the fiscal terms.
It was an unusually bold move by a government that has been characterized as dithering, hesitant and uncertain.
A letter from Deputy Prime Minister Anne McLellan to Imperial Senior Vice President Randy Broiles made a commitment to support the project on terms Ottawa considers “commercially reasonable.”
The government, she said, is ready to assume “some of the project downside risks, provided it is able to share in the potential financial rewards.”
Commercial participation, short of an equity position
That was interpreted as an unmixed message that the government was open to negotiating some form of commercial participation, while stopping short of seeking an equity position.
There had been a round of rumors earlier in November that Ottawa was on the verge of becoming a part owner, but Rolheiser said those discussions have never taken place and the Mackenzie proponents are not looking for another partner.
McLellan pledged federal support to facilitate the legal, environmental and regulatory approvals, underscoring the government’s determination to open up a new energy source.
She said the government hopes to complete an assessment of all the options by mid-2006.
Aboriginal land access, economic benefits unresolved
That leaves a resolution of aboriginal land access and economic benefits issues as the last major obstacle in the path of public hearings, which could start by late January.
Rolheiser said negotiators for the Mackenzie consortium and the aboriginal regions believe they have reached the “basis for agreements,” but until those proposals are ratified by the communities they will lack the needed credibility and integrity.
The Deh Cho First Nations, the most consistent holdout among the four aboriginal regions, is not ready to fall into line, warning that it and the industry are still some distance apart.
McLellan was clear in her expectations, saying that “no party should impede the timely access to land required for the project to proceed.”
Northwest Territories Energy Minister Brendan Bell suggested that concluding a “couple” of agreements would be the tipping point.
But if the Canadian government is not going to become an equity partner, what is the likely course it will take?
Four options on table
The options on the table include:
• Accepting gas in lieu of royalties.
• Guaranteeing gas in excess of the 830 million cubic feet per day of commitments by Imperial, ConocoPhillips Canada, Shell Canada and ExxonMobil Canada, owners of the anchor fields. That would hinge on strong evidence that more gas is to be found in the Northwest Territories, which carries the promise of higher royalty revenues for the government.
• Offering a “profit-sensitive” royalty scheme similar to that used in the Alberta oil sands, where new projects pay a 1 percent royalty until the capital costs are retired.
• Various forms of federal investment in one or more of the Mackenzie’s components.
The government is now interviewing Canadian investment banks with the intention of hiring one to become its financial adviser and assemble a structure that meets Ottawa’s requirements.
Some drilling by non-owners
While the key players have reason to be buoyant over what Rolheiser said is “significant progress,” E&P companies outside the main gas owners’ group may be more willing to move on drilling programs.
High on that list is Devon Canada, which plans to spud the first well in the Beaufort Sea in almost two decades.
That well, costing up to C$60 million, is the only one scheduled for this winter in the Beaufort/Mackenzie Delta area.
On the downside, a partnership of Apache Canada and Paramount Resources shelved winter plans for drilling one to three wells in the Central Mackenzie Valley, blaming delays in the Mackenzie project and “other factors beyond Apache’s control.”
Apache wants the cloud of uncertainty over the pipeline to be removed, but even then it is concerned that gas will not be delivered until 2011, two years behind the original hopes.
Chevron Canada (with partners BP Canada Energy and Burlington Resources Canada) and EnCana (with partners Anadarko Canada and ConocoPhillips) have stalled their Delta exploration programs while they evaluate earlier drilling successes.
In the Central Mackenzie Valley, Husky Energy intends to drill two wells in the Summit Creek B-44 exploration license this winter.
In the Fort Liard area of the lower Northwest Territories, Anadarko has postponed plans for a C$250 million gas gathering system for another year, although that is not linked to the Mackenzie project.
